Webb v. Manhattan Life Insurance

Citations: 220 Ark. 478; 248 S.W.2d 385; 1952 Ark. LEXIS 733Docket: 4-9783

Court: Supreme Court of Arkansas; May 5, 1952; Arkansas; State Supreme Court

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On September 24, 1925, The Manhattan Life Insurance Company issued a $15,000 life insurance policy (No. 218557) to Clarence E. Webb, which included double indemnity and disability clauses. A second policy for $10,000 (No. 215800) was issued to Webb on January 14, 1925, without such clauses. After Webb's death on June 6, 1950, his wife, as the beneficiary, sought $10,935 from the first policy, claiming it was due after deducting a loan of $4,065. The insurance company denied full payment for the $15,000 policy, asserting it had lapsed due to nonpayment of the annual premium of $436.50, which was due on September 24, 1946, and had not been paid within the 31-day grace period. The trial court ruled in favor of the insurance company without providing conclusions of law, leading to the appellant's appeal.

The policy required timely premium payments and included provisions for a grace period and reinstatement under certain conditions. After two years of the policy being in force, the insured could select from options for handling a defaulted premium. When the premium was due, Mrs. Webb mailed an uncertified check for $680.50 (covering the premium and loan interest) to the company, which arrived on October 24, 1946, before the grace period ended. The company deposited the check the same day and sent a premium receipt that required countersigning by an authorized representative and indicated that the receipt would be void if the check was not honored.

On October 29, 1946, McGehee Bank received a check from Mr. Webb, which was later returned due to insufficient funds. After the grace period expired, Mr. Webb attempted to rectify the situation, but the insurance company refused to waive the forfeiture and offered reinstatement contingent on satisfactory evidence of insurability. Mr. Webb applied for reinstatement but failed a required physical test. Following the expiration of the ninety-day reinstatement period, and after Mr. Webb did not choose among the three options provided in the policy, the company calculated the net cash value of the policy as of September 24, 1946, to be $540.00. Consequently, it issued Mr. Webb extended term insurance for $10,935, effective for two years and 327 days, without a requirement for prior notice to Mr. Webb.

The trial court affirmed that the policy lapsed due to non-payment of the premium due on September 24, 1946, or within the 31-day grace period. The company accepted a check on October 24, 1946, one day before the grace period ended, but issued a conditional receipt, which stated the receipt would be void if the check was not honored. This meant the receipt was not an unconditional acceptance of the premium payment. The case referenced, Hare v. Illinois Bankers Life Assurance Company, supports the ruling, indicating that the company was not obligated to accept a subsequent payment after the grace period had lapsed. The appellant’s claim that Manhattan Life held sufficient cash values to cover the premium was contradicted by testimony indicating no available funds existed to prevent the policy's forfeiture at the time of the premium default.

Webb did not pay any premiums after his insurance policy lapsed in 1946. As of September 24, 1946, the cash value of Policy No. 218557 was $4,605, minus an outstanding loan of $4,065, resulting in a net value of $540. This net value was used to obtain paid-up term insurance for $10,935, valid for two years and 327 days. The insurance amount reflects the original face value of $15,000, adjusted for the loan. The appellant argued based on a precedent case that it was required to demonstrate the insufficiency of the divisible surplus to cover monthly premiums to maintain the policy during the insured's lifetime. The appellant failed to provide this evidence and did not notify the insured of the surplus amount when requested during the trial. The records also indicated that dividends were declared on the $10,000 policy from 1924 to 1946, while the $15,000 policy received no dividends after 1933. The appellant contended that the appellee needed to explain the lack of dividends on the larger policy. Schubert testified that no dividends were declared, likely due to the policy's disability benefits. A New York statute from 1931 allows insurers to differentiate dividend payments based on the presence of disability benefits. The New York Court of Appeals upheld that distributing lower dividends on policies with disability benefits is not discriminatory. Given that the appellee operates in New York, this statute likely accounts for the absence of dividends on the questioned policy. The judgment in favor of the appellee is affirmed.